News / Warehouse operators 'in the driver’s seat' as demand and costs keep rising

© Henadzi Pechan

Warehousing costs in the US are set to continue their ascent through this year, a new study from insightQuote has warned.

Its annual Warehousing Cost and Pricing Survey shows an average yearly increase of 5.59% for 2021, following a 3.3% rise last year.

Of the warehouse operators surveyed, 61% are raising prices this year, while last year, 69% of respondents put up their charges.

The survey is based on input from more than 600 warehouses in the network of insightQuote subsidiary WarehousingAndFulfillment.com.

According to real estate investment trust Prologis, the utilisation rate of warehouses stood at almost 85% at the end of the first quarter and, with demand well in excess of supply, this is unlikely to change in the foreseeable future.

Prologis suggests rents in logistics real estate will rise 6.5% this year, and its latest quarterly industrial real estate survey, published at the beginning of May, showed its highest reading since late 2018. It bases the robust growth projections on strong retail sales and importers building up inventories.

E-commerce has been another powerful driver of demand for warehouse space. According to one report, Amazon has increased its logistics footprint in Canada, for example, by nearly 12 million sq ft in nine major markets since the end of 2019.

And insightQuote points out that growth has been consistent in recent years, but accelerated markedly through the pandemic.

“This shift over the last year, as a result of Covid-19, has put fulfilment and warehouse operators in the driver’s seat, in terms of commanding higher prices for services, which is reflected in our survey results,” the insightQuote authors wrote.

The survey also provides detailed insight into the terms of engagement between warehouse providers and their clients. Annual contracts are most popular and offered by 57% of respondents. Multi-year terms are offered by 48% and 46% accept month-to-month deals.

A variety of storage fees are in play, led by charges per pallet (used by 93% of respondents), while 30% charge per bin. Levies based on cubic feet and square feet are charged by 27% and 15% of warehouse firms, respectively.

Pallet and bin charges have gone up, the survey shows. At the same time, fewer firms offer storage discounts. Only 49% are doing so this year, as opposed to 62% in 2020. On average discounts are between 5 and 10%. Carton fees are frequently at cost plus 10-15%.

For pick & pack services, charges in the B2B segment have held steady, at an average $4.27 per one-item order, whereas they increased from $2.96 to $3.13 in the B2C arena.

When it comes to charging for shipping services, the survey found 64% employ a cost-plus model and 37% offer discounts off published rates. Nearly 40% allow customers to use their own rates. For ground shipping, the average discount is 19.28% off published rates, rising to 25.06% for express and 24.18% for international shipments.

Most operators levy a variety of ancillary charges. According to the study, these do not constitute a large percentage but are, nevertheless, important to note.

Set-up fees are levied by 53% of operators, ranging from $120 to $1,500, with an average of $548.52. Account managing fees vary between $75 and $500 per month, averaging at $160.10. Some 95% of warehousing providers charge receiving and returns fees, the former averaging $10.10 per pallet and $441 per 40ft container. Returns fees average $5.28 this year, up from $4.05 in 2020.

These increases have not raised operators’ margins, though, the study found. They have remained steady, at an average level of 11%.

Costs have gone up from an average of $7.81 per sq ft in 2020 to $7.91. Staffing costs for management positions have risen, on average, from $52,700 to $55,800, while hourly wages on the floor increased from $13.47 to $14. Amazon is currently on a recruitment spree, offering $17 per hour for logistics and fulfilment workers, and by most estimates, labour costs will continue to rise.

The insightQuote study found that 86% of warehouse providers are measuring performance metrics. The picking accuracy rate stands at 99.21%, which the authors deem necessary in a highly competitive environment.

The study does not touch on plans for automation and investment. In the current environment, where capacity growth lags the rise in demand, this looks set to make a crucial difference. Prologis estimates that automation could help boost facility productivity by 10-20%, with the largest gain potential in the use of automated storage and retrieval systems.